Part of the responsibility of owning an arts-related business is paying taxes. Tax laws are difficult to navigate. The first thing any new business owner should do is set up a meeting with a CPA to discuss how the local, state, and federal tax systems work.

Taxes and Self-Employment

Freelance writers, photographers, artists, and other creative professionals are considered self-employed, and those who are self-employed have more control over their taxes than other businesses or employees. But it also means that the professional needs to pay extra-special attention to payments and expenditures. Income from the creative business should be kept separate from any other income, and a good record of all income should be kept. Equally, a good record of all business-related expenditures should be kept (using a credit card especially for business expenses is one way to keep track of purchases). The CPA will be able to advise what expenditures are tax-deductible. If there is a space in the home that is dedicated for business, a percentage of the household expenses may be eligible for a tax deduction. This area cannot be used for any other purpose; for example, an office can not double as a guest room.

Self-employed artists need to be aware of the Self-Employment Tax. The tax is paid quarterly, based on the anticipated income for the year. With the help of their CPA, the creative professional should set aside money regularly throughout the year to pay the anticipated taxes. The Self-Employment Tax covers Social Security and Medicare.

Taxes and the Small Business

For the creative professional who has expanded into a small business, there are other tax concerns. When establishing the business that will be hiring employees, the IRS will assign an Employer Identification Number (the federal tax ID number). It is the business owner’s responsibility to withhold taxes from the employees’ paychecks and distribute them to the proper government agencies. Taxes include FICA and federal and state unemployment. The CPA or local tax officers will be able to advise the small business owner on the need for sales taxes on the product or service offered.